What is a Supplemental Needs Trust?

A Supplemental Needs Trust (or Special Needs Trust), commonly abbreviated as SNT, is a Trust setup to supplement people on means tested programs.

If setup correctly, a Supplemental Needs Trust (SNT) will not affect a person’s means tested benefits.

SNTs come in two major types:  The first party or self-settled and the third-party trust.

First Party Supplemental Needs Trusts

42 U.S.C. 1396p(d)(4)(A)) and 42 U.S.C. 1396p(d)(4)(C)) authorize first party trusts.

Both authorized Supplemental Needs Trusts have a Medicaid payback requirement.  This means that when the beneficiary passes away, the Trust must pay back Medicaid for all Medicaid benefits received during the beneficiary’s lifetime and in all states.

The first type is the self-settled trust.  This means that it is the person’s own money in the trust.  Until December 2016, a person could not setup these themselves.  However, in December 2016, the President signed into law a change that allowed a person to create these types of trusts themselves.

The request is that the person is under 65 years old and disabled under the Social Security definition.  The trust must be for the “sole benefit” of the beneficiary.  You can’t mix and match people in the trust.

The second type is the “pooled” trust.  The only stated requirement is that the person must be disabled under the Social Security definition of disability.  To create a pooled trust, the pool invests the money in a common investment fund.  Think of it like a mutual fund.  The common pool invests each person’s money but each person has a separate accounting.

Third-Party Supplemental Needs Trusts

The law does not directly authorize third-party trusts. Third-party trusts are a way to use money for the special needs person’s benefit, while making sure the money is never theirs.

Generally, the well written third-party supplemental needs trust is not countable as a Medicaid resource.  Somebody other than the beneficiary must create the trust, the funds must not be available to the beneficiary, the trustee must have complete discretion, and the trust used to supplement Medicaid or other means tested programs.

One major benefit is that there is no requirement to pay back Medicaid.  Since the money never belonged to the person, you can decide where the money goes.

Another benefit is that the trustee can weigh the pros and cons of using the money for things Medicaid provides and spend on them anyway.  The trustee must weigh the spend against the loss of benefits.  Some trusts provide the language to do this, and others restrict the trustee to just supplementing.

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from DeWitt Law Firm, PLLC